Nortel Networks shares sank about 17 per cent, pulling its peers lower, after jobs cuts and forecasts of falling sales ended hopes that the worst of the slump in telecom equipment spending is past.
The Ontario-based Nortel, one of the world's largest telecom equipment manufacturers, blamed the cuts on lower spending by US phone companies. Analysts said the news showed demand for telecom equipment has not stopped sinking.
"I think unfortunately the worst is not over for the sector or the industry... Nortel just served to remind everyone that we've probably got a tough six to 10 quarters ahead of us," said Mr Stephen Kamman, an analyst with CIBC World Markets in New York.
Mr Kamman maintained his "sector perform" rating on Nortel but cut his price target to $2 from $2.50.
Among the stocks feeling Nortel's pain are fiber-optic cable maker Corning off 10.9 per cent; rival Lucent Technologies, off 11.1 per cent; and Ciena, down 12.2 per cent.
Nortel warned yesterday that soft demand would cut third-quarter revenue and that it had to cut another 7,000 jobs to break even. It plans to reduce its quarterly break-even cost structure to below $2.6 billion in revenues from $3.2 billion.